Amgen's New Dream Team

Following what he refers to as "a very smooth leadership transition," Amgen's new chairman and CEO Kevin Sharer is shaking things up. In January, he created two new executive vice-president positions and went outside the company to fill them.

In May, he made room for a third new vice-president, a dot-com refugee with no pharma background. That same month, he raised the wholesale price of Epogen (epoetin alfa) 3.9 percent, generating criticism from dialysis centers. And in an earlier surprise move for the independent biotech, he initiated the purchase of Kinetix, a small-molecule company 3,000 miles from headquarters.

After more than a decade of Gordon Binder's hierarchical and continuous leadership, Amgen is undergoing a radical change in executive management. "I want to run the company in a more team-based style," Sharer says. "I would like to make decisions with eight or nine of us around the table and keep it as open, transparent, and interactive as possible. In the best transitions, the succeeding CEO is quite different from the person he succeeds, because that's how growth and change happen in a company."

With the need for new products foremost in mind, another of Sharer's bold first-year moves was to increase R&D spending, which was already 26 percent of sales. But Amgen's pipeline should be fruitful long before the new investment has a chance to mature. Four products are awaiting approval and are expected to launch in the next 18 months. Coupled with a fresh executive team, that pipeline could make 2001 Amgen's breakout year.

Biding His Time

Not only does change come easy to Sharer, he seeks it out. As a young man, he served on two nuclear attack submarines and earned a bachelor's degree in aeronautical engineering from the US Naval Academy. But that didn't hold his interest for long, and he went on to earn a master's degree in business administration from the University of Pittsburgh.

With the new degree in hand, he served as a consultant for McKinsey & Company, then moved to General Electric, where he worked his way up through various executive positions. From there, he joined MCI Communications as executive vice-president and president of the business markets division.

His foray into pharmaceuticals was serendipitous. "I was at MCI in 1992 and received a fax from an executive recruiter literally saying, "Do you know anybody who wants to be the president of Amgen?'" Sharer recalls. "I didn't know what Amgen was; I'd never even heard of it. So I did some research and talked to friends who knew of the company. And it became immediately apparent that this was an exciting place, so I said, 'Sure. Me.'"

At that time, Amgen was entering a commercial growth phase. "Somebody with a management background in high technology was seen as an important addition," he says. "The fact that I didn't know anything about the healthcare industry was not seen as fatal because you can learn that. And during the time I was president, I did."

It was understood from the beginning of their relationship that Sharer had the opportunity to succeed Binder as CEO. "There were no guarantees," he emphasizes. "There never are. But one thing that attracted me to the company was that Gordon and I were 13 years apart in age, and that's just about the perfect difference, in my view, between the number one and number two, so there's never any generational competitiveness. So the job I took was mine to lose."

As a management team, Binder and Sharer were a balanced blend of similarities and differences. "We had absolute overlap in our personal values, and we had a great commonality about our aspirations for the company and our personal standards about strategy. But in style, we're very different," Sharer says. "I'm a more communicative person than Gordon, and I tend to think out loud a bit more than Gordon did."

During their time together, Sharer learned the business, learned from Binder, and kept his eye on the top job. "There's no question that I was ready. I'd been at the company for seven-and-a-half years. And I'm an ambitious guy."

Building a Team

Because having a pharma background was immaterial to his upward climb, Sharer doesn't believe it's necessary for those he hires. Richard Nanula, recently appointed vice-president of finance, strategy, and communications, has never worked in the industry. (See "The Planner," page 42.)

"I am delighted that Amgen is able to attract an executive of Richard Nanula's caliber," Sharer says. "Richard is a seasoned executive with significant experience and a demonstrated record of accomplishment in the areas of operations, financial management, and corporate strategy."

His first two vice-presidential appointments do have Big Pharma experience. Roger Perlmutter, Amgen's first vice-president of R&D, spent five years at Merck. (See "The Doctor," page 44.) And George Morrow, the new vice-president of global sales and marketing, previously served as president and CEO of Glaxo Wellcome North America. (See "The Brand Builder.")

But Sharer sees that experience as irrelevant: "I didn't seek them out because they worked for pharmaceutical companies. I sought people with certain qualities, and I found them at those two companies. I expect Roger to make a dramatic difference in the productivity of research and development and in the way our R&D organization interacts with marketing to have a more integrated approach to drug development.

"George Morrow is the best executive in sales and marketing in the entire industry, whether biotech or pharmaceuticals. His job is to make sure we successfully launch our new products-that's job one. But he's also responsible for creating an integrated world view of how to develop and launch products. And finally, he must teach us how to be as commercially competitive and successful as we possibly can."

The fourth "deputy," as Sharer calls them, is Dennis Fenton, a 20-year Amgen veteran. Around the time Sharer took the helm, Fenton was promoted to executive VP of manufacturing and operations. Apparently, he runs a tight ship. "When you look around the industry, a number of companies-Lilly, Abbott, and others-have recently had some serious problems with their manufacturing and FDA," Sharer says. "We've never had those kinds of problems. Dennis' job is to make sure the product is there when we need it, that the quality is high, and that our relations with FDA are very positive."

Familiar Conflict

If things go according to plan, Fenton will soon have additional manufacturing responsibilities. Currently awaiting FDA approval is Aranesp (novel erythropoiesis stimulating protein), a long-acting version of Epogen that Amgen is counting on to expand its presence in the anemia market. Epogen, now 12 years old, posted sales of $1.96 billion last year, a 12 percent increase from 1999, but its growth is slowing and analysts say the product has peaked.

The anemia market, on the other hand, continues to grow. An aging population creates higher rates of cancer and diabetes, both of which can cause anemia. In diabetics, the anemia results from kidney failure. Analysts estimate that the market could reach $10 billion by 2005.

Amgen plans to market Aranesp in both disease areas. It has already been approved for kidney patients in Europe, and an application with FDA for kidney-related anemia is pending. The company will soon file for a cancer-induced anemia indication, a whole new market for Amgen. Epogen currently is targeted only to kidney patients, because early on, Amgen licensed the rights to market epoetin alfa for cancer support to Johnson & Johnson. So Aranesp, when approved, will compete against J&J's Procrit brand of epoetin alfa in the cancer-support market.

"I don't underestimate the challenge," Sharer says. "But we're hiring enough people, and we have experienced leadership. It will be an uphill fight, but I know the product characteristics are positive, and those are markets in which our company is well known. We won't be outgunned in terms of people or spending."

Even though the market competition will be new, the conflict is not. The two companies have been in and out of court since they signed the epoetin alfa marketing agreement more than a decade ago. And Amgen is tired of the fight. The company recently filed suit to terminate the partnership and recover all rights to the anemia product, claiming that J&J has repeatedly violated the agreement.

Sharer acknowledges that it is a difficult situation: "Obviously, they are fighting with every resource they have, and it will go to trial. We'll see what happens. But it's a serious effort on our part to redress some problems. At the same time, we're partners with J&J in other ways, and we're trying to do the best we can. It's an almost schizophrenic relationship."

One way in which they partnered was to file, and recently win, an epoetin alfa patent infringement suit against Transkaryotic Therapies, eliminating a potential competitor for both companies. "It still must be appealed," Sharer cautions. "And I don't want to lose sight of that. But we're very optimistic, given the nature of the judge's decision. He affirmed a number of claims and patents, and all we have to do is prevail in one claim. So it really raised the bar for TKT."

Busy Launch Pad

Aranesp is only the first of several pending launches. Next to hit the market may be abarelix, a treatment for hormonally responsive prostate cancer that was originally developed by Praecis, which is collaborating with Amgen to commercialize it. The peptide antagonist inhibits a hormone in the pituitary gland, suppressing the production of testosterone in men and estrogen in women. Amgen filed for the prostate cancer approval in December 2000, but the product is also in Phase II clinical trials for endometriosis, a condition involving the uterine lining that can be treated with an estrogen suppressant.

Its competitor, TAP's Lupron (leuprolide) is well established, and some analysts are concerned about abarelix's ability to compete. But Lupron, a superagonist, is known to cause a hormonal flare that can last a few weeks before it begins to reduce testosterone and estrogen levels. Abarelix's advantage is that it does not create the flare, which acts as a tumor growth factor, and therefore is a faster acting anticancer agent. Without the flare, women with endometriosis would avoid unnecessary pain in the first few weeks of treatment.

Sharer says, "There isn't a large body of clinical evidence that proves that cancer patients are better off with immediate testosterone suppression compared to flare. But when you think about the disease mechanism and what makes sense, oncologists I've talked to say everybody ought to be on abarelix. There's no downside, and there's a significant upside."

Prostate cancer is a new playing field for Amgen, and the company is preparing for the market by hiring a new field force and introducing itself to the urology community. One of the biggest issues will be reimbursement. Leuprolide is off patent, and Amgen will have to prove it has a superior product to convince payers to spend the extra money on abarelix. "You always have to consider position economics, reimbursement availability, and ease of access as a big part of a product's profile and whether, in fact, it's attractive," Sharer explains. "Safety and efficacy are necessary, but they're not sufficient. You also need the reimbursement side, so if you have them both, and you've marketed well and persistently, you probably will get a good commercial outcome." yy�yy�yy�

A third product under review by FDA is anakinra (IL-1ra), a rheumatoid arthritis drug that acts against the IL-1 component of the immune system. If approved, the product would go up against Immunex's Enbrel (etanercept), which works against tumor necrosis factor (TNF), a parallel molecule in the immune system. Ankinra's mechanism of action is unique, but according to some reports, it is less effective than Enbrel. To that concern, Sharer responds: "Enbrel is effective in a relatively low percent of patients, and over time, some of those people develop nonresponsiveness. It's also typical for rheumatoid arthritis patients to take multiple drugs. So I don't see this so much as a head-to-head with Enbrel, but rather both of these drugs opening up a really big, underserved, and highly needy market. They both have disease-modifying potential, not just symptomatic relief, and that's why the medical community is so excited about them."

Also recently filed with FDA is a long-acting version of Amgen's other blockbuster Neupogen (filgrastim), a white blood cell and immune system booster for the treatment of chemotherapy induced neutropenia. The second-generation product, which the company hopes will be granted the marketing name of Neupogen LA, is administered only once in a chemotherapy cycle instead of every day. As an injectable, the advantage to patients goes without saying. SD-01, as it is currently known, binds the active protein with a polyethylene glycol to increase the plasma half-life, and as a result, it circulates longer in the body.

Four new products on the market could dramatically increase Amgen's sales base and size. Sharer is cautiously optimistic: "In November of last year, we made a presentation to the analysts and financial community in which we said that we expect-hope-to be at $8yy�yy�yy�$9 billion in sales by the year 2005 with a low 20 percent compound annual growth rate in earnings per share." He bases those predictions on a 30 percent market share. "That seems bold," Sharer acknowledges. "But some analysts have said, "That looks pretty conservative, given the characteristics of the products.' So our basic bet is that the anemia market will continue to grow.

"Together, Aranesp and Epogen will have a large share of that market. If Aranesp is successful in the way that we hope it can be, Amgen will be successful. If Aranesp plus the other three products are successful, we're in really good shape. And if all four of them are successful, we're off to the races. But Aranesp needs to be a success."

More on the Way

Those four products are only the tip of the iceberg. Last year, Amgen acquired eight preclinical projects and has plans to license more. One recent move was to license epratuzumab from Immunomedics. The Phase III product is intended for the treatment of non-Hodgkin's lymphoma and, if approved, it could compete directly with Rituxan (rituximab), an antibody co-marketed by Genentech and Idec. Amgen also has several interesting candidates in Phase I and II clinical trials.

Calcimimetics. These orally active small molecules suppress the secretion of excessive amounts of parathyroid hormone, which leads to hyperparathyroidism and bone loss. Currently in Phase II trials, the therapy is another supportive care product for kidney dialysis patients.

KGF. Keratinocyte growth factor fits into Amgen's cancer-support franchise and is intended to address the problem of oral and gastrointestinal mucositis, caused by the destruction of cells that line the mouth and intestines. Currently in Phase II trials, the therapy is a recombinant form of a naturally occurring growth factor.

Leptin. This human protein produced by the obesity gene acts as a metabolic regulator and has been shown to be effective in weight loss. It is also being studied for treating lipodystrophy, or lack of body fat. "There aren't many patients with hypolipodystrophy, but giving them Leptin is dramatic in its clinical effect," Sharer comments. "Do HIV patients have a possible use for this drug? The data we have now suggests that it's an interesting question and that there's a reason to want to run the experiment." Second-generation molecules are in Phase II trials.

sTNF-R1. Phase II trials are underway for this soluble tumor necrosis factor-a receptor type 1. Preliminary results show it to be effective in treating rheumatoid arthritis.

OPG. Discovered in-house, this recombinant protein appears to be a critical regulator of bone mass and could be useful in treating osteoporosis and cancer-related bone metastasis.

Neuroimmunophilins. This class of compounds is being for the promotion of nerve regeneration and repair in Parkinson's disease patients.

Facing the Giants

Sharer has set high standards for the company. "We aspire to be the world's best human therapeutics company," he says without hesitation. "What that means is, over time, we must deliver a continuing stream of products that dramatically improve patients' lives. We're going to have to operate-independently and successfully-in the biggest markets in the world. And we must deliver superior shareholder return compared to others in the industry. As a consequence of those things, we certainly will be independent; that's a key part of our strategy."

After a decade of selling only a few supportive care therapies, Sharer emphasizes the need for Amgen to expand its line. "All the rewards I talked about in terms of investor return and our own freedom will happen. But it's products that count the most. This is a product-driven industry, and if you've got the products, you have a chance. If you don't have the products, you're in trouble."

In the past, the biotech company concentrated primarily on large molecules, but its new R&D strategy focuses on three therapeutic modalities: large proteins, antibodies, and small molecules-which is where the purchase of Kinetix comes in. The Cambridge, Massachusetts-based company has the expertise in small molecules that Amgen needs to succeed in that area.

New markets mean new competition and, in this case, direct competition with Big Pharma. All of Sharer's moves are gearing up for the battle. "Epogen and Neupogen both have had relatively benign competitive environments," he admits. "The new products we launch will be in the teeth of the fiercest commercial competition the industry has to offer, and we have to be ready to succeed in that environment." Hiring a team of top-notch executives is a bold step in that direction.